Rent relief for commercial tenants – COVID-19

Following a national cabinet meeting, the Prime Minister has today announced new rental waivers and deferrals for commercial and retail lease tenants who have been impacted by the COVID-19 pandemic.

Under this new ‘code of conduct’, landlords will be required to reduce leases in proportion to the reduction in the tenant’s business.

The code will be applicable in cases where the tenant or landlord is eligible for the JobKeeper payment (i.e. 30% or more reduction in turnover) and business turnover is $50 million or less.

Furthermore, payment of rental deferrals by the tenant must be repaid over the balance of the lease term and for a period of no less than 24 months (whichever is greater), unless otherwise agreed by the parties.

The new mandatory code of conduct is to be legislated by each state and territory.

The mandatory code will also prohibit the following:

termination of leases for non-payment of rent;

rent increases;

penalties for tenants who stop trading or reduce opening hours;

landlords passing land tax to tenants;

landlords charging interest on unpaid rent; and

landlords making a claim on a bank guarantee or security deposit for non-payment of rent.

Where landlords and tenants are unable to reach agreement on leasing arrangements, the matter should be referred and subjected (by either party) to applicable state or territory retail/commercial dispute resolution processes for binding mediation.

If you are a landlord or tenant, there will be several practical considerations moving forward. Any rent relief should be formally documented and any permanent change to the lease should be done via a variation to the lease. How the rent relief will be structured is a matter to be determined between the parties, as is the requirement for a tenant to justify the relief sought so that the relief is proportionate and reasonable.

It is expected that the code will be defined by each jurisdiction shortly and will remain in force for the period during which the JobKeeper program remains operational.

If you are a commercial/retail lease landlord or tenant, and require assistance with this new code of conduct, please contact us.